Here’s a sample estate freeze structure tailored for a business owner in Ontario, designed to lock in the current value of a private corporation and shift future growth to the next generation or a family trust:
Sample Estate Freeze Structure
Step 1: Valuation
Determine the fair market value of the business (e.g., $5 million).
This sets the baseline for the freeze.
Step 2: Share Reorganization
The business owner exchanges their common shares for preferred shares with a fixed value of $5 million.
These preferred shares:
Have a fixed redemption value.
May carry voting rights to retain control.
Do not participate in future growth.
Step 3: Issuance of New Common Shares
New common shares are issued to:
A family trust (recommended for flexibility and tax planning), or
Directly to children or other successors.
These shares will capture all future growth of the business beyond the $5 million freeze value.
Step 4: Family Trust Setup
The trust is settled with a nominal amount (e.g., $10).
Trustees (often the business owner and spouse) manage the trust.
Beneficiaries include children, grandchildren, or even holding companies.
Step 5: Tax Planning
Use Section 85 rollover to defer capital gains tax on the share exchange.
Consider using the Lifetime Capital Gains Exemption (LCGE) for qualifying small business shares.
Plan for future income splitting and capital gains multiplication through the trust.
Step 6: Ongoing Management
Preferred shares may pay dividends to the business owner.
Trustees manage the new common shares and decide how growth is allocated.
Upon the owner's death, the preferred shares are taxed at their frozen value, not the appreciated value.
📌 Visual Summary
1 [Business Owner]
2 ↓ (Exchanges Common for Preferred Shares @ $5M)
3 [Corporation]
4 ↓ (Issues New Common Shares)
5 [Family Trust]
6 ↓ (Holds New Common Shares)
7 [Beneficiaries: Children, Grandchildren]
Would you like help customizing it for a specific business type or asset class?
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